Last updated: October 2026 · By José María · This article is for informational purposes only and is not financial advice. Read our Disclaimer.
If you are shopping for a mortgage, you will probably face the FHA vs conventional loan decision early on. Both can help you buy a home, but they work differently and suit different buyers.
Choosing between an FHA vs conventional loan depends mostly on your credit score and down payment.
In this guide, we compare them side by side: down payment, credit score, mortgage insurance, loan limits and total cost. By the end, you will know which one is more likely to fit your situation.
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Why I wrote this guide
When I started researching mortgages, I noticed that most comparisons focus on one number: the monthly payment. But a lower payment today does not always mean a cheaper loan overall. The details that make the biggest difference, such as how long mortgage insurance lasts, are often buried in the fine print. That is why I wrote this guide: to explain the real differences between FHA and conventional loans in plain language, using official sources like HUD, the FHFA and the CFPB.
Quick answer: FHA vs conventional
- Choose an FHA loan if your credit score is on the lower side (below about 680), your savings are limited, or your debt-to-income ratio is high.
- Choose a conventional loan if you have a solid credit score (generally 680 or higher), can put down at least 5%, and want to be able to remove mortgage insurance later.
Of course, the right answer depends on your numbers. Let’s look at the details.
What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration (FHA), part of the U.S. Department of Housing and Urban Development (HUD). The government does not lend you the money. Private lenders, such as banks and mortgage companies, do. The FHA insures the loan, so the lender is protected if you stop paying. Because of that protection, lenders can accept borrowers with lower credit scores and smaller down payments.
What is a conventional loan?
A conventional loan is a mortgage that is not backed by a government agency. Most conventional loans are “conforming” loans, which means they follow the rules set by Fannie Mae and Freddie Mac, the two government-sponsored companies that buy mortgages from lenders. Since lenders carry more risk with these loans, they usually look for stronger credit and more stable finances.
FHA vs conventional loan: side-by-side comparison
| Feature | FHA loan | Conventional loan |
|---|---|---|
| Minimum down payment | 3.5% (with a 580+ credit score) | As low as 3% on some programs; 5% is more common |
| Minimum credit score | 580 for 3.5% down; 500–579 with 10% down | Usually 620 or higher |
| Mortgage insurance | MIP (upfront + annual) | PMI (monthly, depends on credit and down payment) |
| Can mortgage insurance be removed? | Only if you put 10% or more down (then after 11 years); otherwise for the life of the loan | Yes, once you reach enough equity |
| Debt-to-income (DTI) flexibility | More flexible | Stricter, especially with lower credit scores |
| Property use | Primary residence only | Primary home, second home or investment property |
| Property standards | Stricter appraisal requirements | More flexible |
| 2026 loan limit (one-unit home) | $541,287 in most areas, up to $1,249,125 in high-cost areas | $832,750 in most areas, up to $1,249,125 in high-cost areas |
Rules can vary by lender. Always confirm the details with your lender.
Down payment: which one needs less?
The FHA is known for its low down payment. With a credit score of 580 or higher, you can buy with just 3.5% down. If your score is between 500 and 579, you generally need 10% down.
Conventional loans have caught up in recent years. Programs such as Fannie Mae’s HomeReady and Freddie Mac’s Home Possible allow down payments as low as 3% for eligible buyers. However, the standard conventional loan usually asks for around 5% or more.
Example: On a $300,000 home, 3.5% down is $10,500 with an FHA loan. A 5% down payment on a conventional loan is $15,000.
Credit score requirements
This is where the FHA loan stands out. It is designed to be more accessible if your credit history is not perfect, and lenders can approve scores that conventional lenders would turn down.
For a conventional loan, most lenders look for at least a 620 score, and the best rates generally go to borrowers with much higher scores. Your credit score does not only decide whether you are approved. It also affects the interest rate and the cost of private mortgage insurance on a conventional loan.
If your score needs work, our guide on how to improve your credit score before buying a house can help.
Credit score is the biggest factor in the FHA vs conventional loan decision.
Mortgage insurance: the biggest difference
Both loan types charge for mortgage insurance when you put down less than 20%, but the cost and the rules are very different.
Credit score is the biggest factor in the FHA vs conventional loan decision.
FHA mortgage insurance premium (MIP)
With an FHA loan you pay two types of MIP:
- Upfront MIP: currently 1.75% of the loan amount. Most buyers add it to the loan instead of paying it at closing.
- Annual MIP: a yearly premium, paid monthly with your mortgage payment. For most borrowers with a 30-year loan, it is roughly 0.50% to 0.55% of the loan amount per year, depending on the loan size and down payment.
The most important detail is how long MIP lasts. If you put down less than 10%, you pay annual MIP for the entire life of the loan. With 10% or more down, you pay it for 11 years.
Conventional private mortgage insurance (PMI)
On a conventional loan, PMI usually applies if you put down less than 20%. The cost depends mostly on your credit score and down payment, and it often falls somewhere between 0.3% and 1.5% of the loan amount per year. Borrowers with excellent credit pay much less than borrowers with lower scores.
The key advantage is that PMI can go away. You can ask your lender to cancel it once your loan balance reaches 80% of the home’s original value, and by law it must end automatically when you reach 78%, as long as you are current on payments.
Example comparison: On a $300,000 home:
- FHA, 3.5% down: loan of $289,500. Upfront MIP of 1.75% is about $5,066, usually financed into the loan. Annual MIP at 0.55% is about $1,592 per year, or roughly $133 per month.
- Conventional, 5% down: loan of $285,000. If your PMI rate is 0.5%, you pay about $1,425 per year, or roughly $119 per month. With excellent credit it can be lower, and with weaker credit it can be much higher.
These are simplified examples for illustration. Your real cost depends on your lender, credit score and loan details.
Loan limits in 2026
Both programs cap how much you can borrow. For 2026, the FHA limit for a one-unit home is $541,287 in most areas and rises up to $1,249,125 in high-cost counties. The conforming conventional limit is $832,750 in most of the country, and also reaches $1,249,125 in high-cost areas.
In practice, if you are buying in an expensive area, check your county’s exact limit. You can look it up on HUD’s loan limits page, or ask your lender. Loan limits change every year.
Other differences to know
- Debt-to-income ratio: FHA lenders are generally more flexible if you already carry a lot of debt, while conventional lenders tend to be stricter.
- Property condition: FHA appraisals include minimum property standards, so a home that needs major repairs may not qualify. Conventional appraisals are usually less strict.
- Use of the home: FHA loans are only for your primary residence. Conventional loans can also be used for second homes and investment properties.
- Seller help with costs: FHA allows sellers to contribute up to 6% of the price toward your closing costs. Conventional limits are lower and depend on your down payment.
- Assumable loans: FHA loans can usually be assumed by a future buyer, which could be a selling point if rates are higher when you sell.
Which one is cheaper in the long run?
It depends on how long you keep the loan and your credit score.
- Lower credit score (below about 680): FHA is often cheaper, because PMI on a conventional loan can become very expensive for weaker credit.
- Higher credit score (700 and above) with at least 5% down: conventional is usually cheaper, especially because PMI can be cancelled.
- FHA with lifetime MIP: many borrowers later refinance into a conventional loan once they have built enough equity, which removes the MIP. Keep in mind that refinancing has closing costs. See our guide on when refinancing your mortgage makes sense.
The best way to compare is to ask two or three lenders for a Loan Estimate for both loan types on the same home. Look at the interest rate, monthly payment, upfront costs and the APR, which gives a fuller picture of the loan’s total cost.
Who should choose an FHA loan?
An FHA loan may be a good fit if you:
- Have a credit score between 580 and about 680
- Have limited savings for a down payment
- Have a higher debt-to-income ratio
- Are recovering from past credit problems
- Plan to live in the home as your primary residence
Who should choose a conventional loan?
A conventional loan may be a better fit if you:
- Have a credit score of about 680 or higher
- Can afford a down payment of 5% or more
- Want to cancel mortgage insurance in the future
- Are buying a second home or an investment property
- Are buying a home that may not meet FHA property standards
Frequently asked questions
Is it easier to get approved for an FHA loan?
Generally, yes. FHA guidelines allow lower credit scores and higher debt ratios. Each lender still sets its own requirements.
Can I switch from an FHA loan to a conventional loan later?
Yes. Many people refinance into a conventional loan after their credit improves and their home equity grows, mainly to get rid of FHA mortgage insurance.
Do FHA loans have higher interest rates?
Not necessarily. FHA rates are often competitive, but the mortgage insurance makes the overall cost higher in some cases. That is why comparing the APR and total monthly payment matters more than comparing the rate alone.
Is a 20% down payment required?
No. With 20% down, you avoid mortgage insurance on a conventional loan, but you can buy with much less, as shown above.
Can first-time buyers use both loan types?
Yes. Both FHA and conventional loans are open to first-time buyers.
My take
If I had to give one piece of advice, it would be this: do not choose a loan based on the monthly payment alone. Ask each lender for a Loan Estimate, compare the APR and the mortgage insurance, and think about how long you plan to stay in the home. A loan that looks cheaper this month can cost thousands more over the years.
Final thoughts
There is no loan that is best for everyone. FHA loans open the door for buyers with lower credit scores and smaller savings, while conventional loans usually cost less over time for buyers with stronger credit. The smartest move is to compare real offers from several lenders and look at the full cost, not just the monthly payment.
If you are still early in the process, read our guide on how much house you can afford, and learn the difference between mortgage pre-approval and pre-qualification.
In short, the right FHA vs conventional loan choice comes down to your financial situation today.
Disclaimer: Finanzasclave is not a lender, mortgage broker or licensed financial advisor. Loan rules, limits and rates change often. Always confirm current details with your lender or a qualified professional before making a financial decision. See our full Disclaimer and Affiliate Disclosure.
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